EOH plunges 21% on weak earnings

EOH’s share price plunged more than 20% on Wednesday after the JSE-listed technology services group disappointed investors with a weaker-than-expected earnings update.

The update, announced just days after the group unveiled a major restructuring and elevated former CEO Asher Bohbot to the position of nonexecutive chairman, has rattled investors.

Although revenue for the six months ended 31 January 2018 is expected to rise by 16% to R8.4bn, headline earnings per share are expected to plunge by between 20% and 30% compared to the same period a year ago.

Earnings before interest, tax, depreciation and amortisation is likely to be between 5% and 10% lower, at between R980m and just over R1bn, EOH said in a statement to shareholders.

Certain areas in the business, particularly those operating in the public sector, have underperformed and did not timeously adjust their cost base

“Despite the challenging general market conditions during this period, most areas of the business coped well,” the group said. “However, certain areas in the business, particularly those operating in the public sector, have underperformed and did not timeously adjust their cost base.”

It said in view of the challenges, it has “adopted a deliberate customer retention strategy while sacrificing some margin”. It expects better performance in the second half of the financial year.

EOH said earlier this week that it will form two independent businesses within EOH, each with its own identity and brand, growth strategy, go-to-market approach, business model and culture.

The first business will trade under the EOH brand and focus on ICT services and solutions; the second will focus on specialised business areas with domain-specific intellectual property and operating in high-growth areas. The first unit will focus on organic growth, while the second will complement growth with acquisitions, it said.

At the same time, EOH has signed a new black economic empowerment deal with Lebashe Investment Group, which will also provide EOH with a funding facility of up to R3bn.

EOH’s share price closed down 21% at R59.50. The share has lost 58% of its value in the past 12 months. — (c) 2018 NewsCentral Media